Sunday, July 31, 2011

Stealth Raids in Weak and Strong Markets

“You always need to be sufficiently in control of yourself to avoid any so-called random trading.” – Ben Lichtenstein


Nowadays, it’s assumed that price formation in markets can be distorted by both rational and irrational behavior. It’s also understood that the financial markets is a kind of world formula that has an evolutionary and random component. This means that none of the developments are completely predictable. Nonetheless, whether a price movement is rational or irrational on the battlefield of the financial markets, you can reap some bounty if you know how to handle it.

The strategy discussed here arises out of the trading premise: In bull markets, trading instruments are prone to open weak and close strong, whereas in bear markets they tend to close weak and open strong. This kind of market behavior was discovered by some assiduous traders from long-term observations of the markets, and it also works for stock markets. The purpose of this article is to show you one way of benefiting from this type of market behavior. What’s needed here is the ability to carry out some short-term and swing stealth raids on the markets, so to speak. This trading method may make the trader enjoy some satisfactory accuracy.

In order to know the kind of action to take, a trader needs to verify whether a market is bullish or bearish – something that’s explained under the section titled ‘Strategy Snapshot’. Then she/he would buy bull markets at Sunday open and close the positions at the end of the New York session on Friday. Conversely, she/he would buy bear markets at the close of the New York session on Friday and exit the positions at the open of the markets on Sunday. This is done on Fridays – weekends, and when the markets open on Sundays.

Strategy Snapshot

Trading premise 1: Markets tend to open weak and close strong in bull markets

Trading premise 2: Markets tend to open strong and close weak in bear markets

Timeframe: 4-hour charts

Indicators: EMAs 200 and 50 (yellow color for EMA 50 and red color for EMA 200)

Pairs and crosses: 11


Bull market: A bull market is identified when the EMA 50 is above the EMA 200

Bear market: A bear market is identified when the EMA 50 is below the EMA 200

Entry rule1: Buy the bull markets at the open of the markets and smooth your positions at the close of the markets

Entry rule 2: Buy the bear markets at the close of the markets and exit your positions at the open of the markets

Position size: 0.01 lots for each $2000

Stop loss: 100 pips each for long positions, 50 pips each for short positions

Risk per trade: 0.5% for long trades, and 0.25% for short trades

Take profit: 200 pips for long trades, and 100 pips for short trades

Trailing stop: 50% trailing stop for accumulated gains recommended on long trades

As you can see, the use of trailing stop is recommended for this strategy. I don’t need to tell you again the advantages of trailing stop. The main drawback to a trailing stop is that markets rarely just go straight up or straight down: they’ll generally zigzag or air-step one direction or another.

If this kind of trading methodology intrigues you, you may want to give it a try in a simulation mode for a minimum of 2 months. It’s imperative to stick to the position sizing recommended for this strategy; otherwise it won’t work (as it’s true of other strategies). Anyone risking even 3% of his account per trade is a suicide trader – not to mention anyone risking 5% per trade. It’s high risk that makes almost all trading strategies appear ineffectual in the long run. If you think that low risk can’t pay you, it’s high time you looked for a way to supplement your income (otherwise you’ll eventually blow yourself).

Sometimes, in the emotion of the trading moment, your mind may play tricks on you.

The more complex thoughts you’ve in you head when you trade, the less likely you’re to be successful. You must simplify your thought process and focus on what matters most. So tackle your trading as professionally as possible. Look at risk first and use your freedom as a private trader to your advantage.

NB: Please watch out for my coming articles with these titles: ‘Testimonies from My Subscribers,’ ‘Excellent Money Management Flexibility – Make the Best Choice!’ ‘Resist the Lure of High Risk – Part 3,’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Advanced Gap Trading – Trading with Insane Accuracy,’ ‘3 Recent Gap Trades,’ ‘Trading for a Livelihood – One of the Best Jobs in the World,’ ‘Developing the Right Attitude towards Losses - Part 3,’ ‘The True Holy Grail – The Long Sought for,’ ‘Suicide Trading Techniques,’ ‘Achieve Success through Sensible Risk-to-reward Ratio (An Interview with a Trading Enthusiast),’ ‘ Clarifying Some Issues – Part 5,’ ‘ Trade to Win!’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘A CHF Breakout Strategy,’ ‘Overview of My Signals Strategies,’ ‘Is It Realistic to Give Guarantees in Trading?’ ‘Monthly Trading Report (July 2011),’ etc.

I end this article with a quote from Steve Ward:

“…Embracing risk is critical as you can’t become good at something unless you confront it with all your energy… We should welcome risk, just as we’ll welcome the rewards that come with it.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC


Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

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NB: There is risk of loss in trading, but it is possible to be a successful trader.

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